The future of the Internet industry looks bright. The industry has experienced a strong growth trajectory supported by technological advances and changing consumer demands.
While tech giant Alphabet Inc. (GOOGL) has made significant progress in AI technology, the company reported disappointing financial results in the first fiscal quarter. Additionally, inflationary pressures, higher interest rates and lingering recession fears are expected to impact GOOGL’s outlook this year.
In this article, I explained why Yelp Inc. (YAP), trivago AG (TRVG) and Travelzoo (TZOO), which have a superiority POWR Rankingsmight be better investments than GOOGL.
Before discussing these actions, let’s take a look at GOOGL’s recent performance.
GOOGL has lost 5% over the past month but has gained slightly over the past year, closing its last trading session at $118.34.
During the first fiscal quarter that ended March 31, 2023, GOOGL’s total costs and expenses increased 9.3% year-over-year to $52.37 billion, while its operating profit decreased 13.3% year-over-year to $17.42 billion.
Additionally, the company’s net income fell 8.4% year-over-year to $15.05 billion, and its EPS fell 5.1% year-over-year to $1.17. GOOGL also missed EPS and revenue estimates in three of the last four quarters, which is below average.
Moreover, the stock is trading at a higher valuation. In terms of EV/forward sales, the stock is currently trading at 4.91x, 169.6% higher than the industry average of 1.82x. Its non-GAAP P/E multiple of 22.81 is 67% higher than the industry average of 13.66.
The integration of digital technology in all areas of business is expected to fuel a surge in internet penetration in the coming years. The industry is benefiting from the growing demand for virtual communication, remote work tools, e-commerce and streaming services, creating unprecedented opportunities for the rapid expansion of the internet service industry.
Gartner predicts that global IT spending will reach $4.60 trillion this year, an increase of 5.5% compared to the previous year.
Added to these promising prospects is the growing implementation of 5G technology, which promises faster speeds, improved connectivity and enables innovative services such as the Internet of Things (IoT). The industry is also supported by the expansion of fixed wireless access, further strengthening its prospects.
Global 5G services are expected to grow at a pace 59.4% CAGR until 2030.
Let’s take a look at the aforementioned stocks to see how well positioned they are to take advantage of the industry outlook.
Yelp Inc. (YAP)
YELP operates a platform that connects consumers to local businesses in the United States and abroad. The company’s platform covers various regional business categories. It also offers free and paid advertising products for businesses.
YELP’s trailing 12-month gross profit margin of 91.19% is 83.9% higher than the industry average of 49.59%. Its leveraged trailing 12-month FCF margin of 19.28% is 164.8% higher than the industry average of 7.28%.
In terms of EV/Futures, YELP is currently trading at 1.66x, 9% below the industry average of 1.82x. Its non-GAAP P/E multiple of 12.93 is 5.4% lower than the industry average of 13.66.
On April 25, 2023, YELP announced a series of new features that make it even easier for consumers to discover businesses that match their needs and contribute helpful content to Yelp.
YELP’s net revenue increased 12.9% year-over-year to $312.44 million for the fiscal first quarter ended March 31, 2023. Adjusted EBITDA rose 12.3% year over year to $54.03 million. Its net cash from operating activities increased 23.9% year-over-year to $74.24 million.
YELP’s EPS is expected to grow 69% year-over-year to $0.62 in the second fiscal quarter (ending June 2023). Its revenue is expected to increase 8.7% year-over-year to $324.97 million in the same quarter. The company has exceeded revenue estimates in each of the previous four quarters, which is impressive.
YELP stock has gained 28.4% year-to-date and 33% over the past six months to close its last trading session at $35.09.
YELP’s POWR ratings reflect a promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. POWR ratings rate stocks on 118 different factors, each with its own weighting.
It also has an A rating for quality and a B for value. Within 58 shares the Internet industry, YELP is ranked #2.
Beyond what we have indicated above, one can see YELP’s ratings for growth, stability, sentiment and momentum. here.
trivago AG (TRVG)
Based in Dusseldorf, Germany, TRVG operates a global hotel and accommodation search platform. The Company offers online meta-search for hotels and accommodations through online travel agencies, hotel chains and independent hotels.
TRVG’s trailing 12-month gross profit margin of 97.64% is 96.9% higher than the industry average of 49.59%. Its trailing 12-month EBIT margin of 11.55% is 35.6% above the industry average of 8.52%.
TRVG’s anticipated EV/Sales multiple of 0.23 is 87.2% below the industry average of 1.82. Its forward non-GAAP P/E of 6.21x is 54.5% below the industry average of 13.66x.
During the fiscal first quarter ended March 31, 2023, TRVG’s total revenue increased 9.2% year-over-year to €111.04 million ($121.09 million). Its operating profit was €14.76 million ($16.10 million) compared to an operating loss of €4.84 million ($5.28 million) in the year-ago quarter.
Additionally, the company recorded EPS of €0.03 compared to a net loss per share of €0.03 in the prior year quarter.
Street expects TRVG’s revenue to grow 7.6% from the prior year quarter to $159.10 million in the fiscal second quarter ending June 2023. Additionally, its EPS for the same quarter is expected to reach $0.04.
The stock has edged higher over the past five days, closing its last trading session at $1.19.
TRVG’s sonic fundamentals are reflected in its POWR ratings. The stock has an overall A rating, indicating a strong buy in our proprietary rating system.
TRVG has an A rating for quality and a B for growth, momentum and value. Within the same industry, it is ranked first.
To access additional POWR ratings for stability and sentiment for TRVG, Click here.
Travel zoo (TZOO)
TZOO is a global Internet media company providing travel, entertainment and lifestyle experiences. The Company’s segments include Travelzoo North America; Travel Zoo Europe; and Jack’s Flight Club.
TZOO’s 12-month net profit margin of 10.78% is 307.3% higher than the industry average of 2.65%. Its gross profit margin of 86.63% over the last 12 months is 74.7% above the industry average of 49.59%.
TZOO’s advanced EV/Sales multiple of 1.59x is 12.6% lower than the industry average of 1.82x. Its non-GAAP P/E multiple of 10.38 is 24% lower than the industry average of 13.66.
On May 11, TZOO announced that its members-only service Travelzoo META had opened its doors to one million founding members, marking a new era in travel.
This revolutionary platform offers unique travel experiences in the metaverse, allowing members to explore and enjoy virtual travel adventures. TZOO META aims to redefine the future of travel by harnessing the possibilities of the metaverse, providing individuals with a new way to immerse themselves in travel experiences.
During the first fiscal quarter that ended March 31, 2023, TZOO’s revenue increased 17.1% year-over-year to $21.60 million. The company’s non-GAAP operating profit rose 105.4% from the year-ago quarter to $5.54 million.
Additionally, net income attributable to TZOO increased 55.7% year-on-year to $3.67 million, while its EPS increased 21.1% from the prior year quarter to $0.23.
Analysts expect TZOO’s EPS and revenue to increase 154.2% and 19.8% from the prior year quarter to $0.21 million and $21.19 million in the second fiscal quarter ending June 2023.
Over the past six months, the stock has gained 100.2% to close the last trading session at $8.68. It has also climbed 95.1% since the start of the year.
It’s no surprise that the stock has an overall rating of A, which translates to a strong buy in our proprietary rating system.
It has an A rating for sentiment and quality and a B for growth and momentum. Within the same industry, it is ranked #3.
Click here to see additional odds for TZOO (value and stability).
What to do next?
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Shares of YELP were unchanged in premarket trading on Tuesday. Year-to-date, YELP has gained 28.35%, versus a 13.67% rise in the benchmark S&P 500 over the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and her passion for writing made Kritika an analyst and financial journalist. She earned her Bachelor of Commerce degree and is currently pursuing the CFA program. With its fundamental approach, it aims to help investors identify untapped investment opportunities. More…
